For the lakhs of Indians working abroad and their families back home in India, these are indeed good times. The sharp depreciation in the local currency means the money they send home fetches more rupees on conversion.
In fact, a World Bank report says that India's migrant workers are expected to rush back more dollars home this year to take advantage of the weak rupee. At an estimated $71 billion (Rs 4,40,200 crore), India will be the top recipient of official remittances this year. This is besides the huge sums of money sent back home through informal channels.
If you are among such NRIs, you would want to put the money to productive use by investing in high return generating instruments. Despite the ongoing slowdown, India continues to offer numerous investment opportunities for foreign investors, who do not enjoy such high rates in their country of work. The current volatility has created attractive entry points for NRIs across a range of asset classes. If you are looking to invest in India, what are the options you should consider? Before we delve into the choice of investments, let us consider the formalities and procedures that NRIs have to follow to be able to invest in India.
How to begin
If you wish to invest in India, the first step is to open a savings bank account. There are three basic types of bank accounts for NRIs.
Go for a non-resident external (NRE) rupee account if you are looking to remit overseas earnings to India and hold them in rupees, as also repatriate the proceeds of your investments back to your home country without any restrictions. An NRE account is completely tax-free and no tax is payable on the interest earned on the balance.
But you cannot put income from rent, salary and dividends in the NRE account. For that you need a non-resident ordinary (NRO) account. However, the interest earned on the NRO account is taxed at the marginal rate of 30% plus surcharge and cess. The balance in the account is also subject to wealth tax.
The advantage is that NRO accounts can be jointly opened with a resident Indian. If you do not wish to be exposed to exchange rate risk, you can instead open a foreign currency non resident (FCNR) account with a local bank, where your funds are held in the foreign currency, and not converted to rupees.
In order to open an account, you can either visit the nearest branch of the Indian bank in your home country, if any, or send the completed application form (you can get it online) along with the documents to any of the branches in India (see box).
Tax liability for NRIs
You should be aware of the tax implications on investments in Inida. Although there is no difference in the tax rates for NRIs and resident Indians, the tax is compulsorily deducted at source in case of NRIs. So your share broker, mutual fund and bank will deduct tax before giving you the redemption proceeds.
Worse, the TDS is charged at the highest applicable tax rate for that investment category irrespective of the actual liability (see table). For instance, you may not have any tax liability due to losses incurred on another investment but your broker will still deduct the tax.
Where to invest
For many NRIs, property is the primary choice of investment. The bulk of their money is directed towards real estate investments. However, some experts feel this is not the ideal route for all NRIs.
S.P. Dhanapal, financial planner, Sudha NRI Consultants, insists, "Often, NRIs lock-up a chunk of their money in property, which remains unused. This leaves no scope for liquid investments. They would be better off making liquid financial investments." Also, real estate investments here involve a lot of hassles and the lack of transparency makes it a tough proposition to find a desirable property.
If you are willing to look beyond property, there are a lot of options to park your funds. While considering any of these options, the major deciding factor should be the expected return, and not the exchange rate, asserts Hemant Rustagi, CEO, Wiseinvest Advisors.
"NRIs stand to benefit from investments here when the rupee appreciates against the dollar. Since the exchange rate can go either way, you should focus more on taking a longterm view and picking high-return instruments," Rustagi adds.
As a start, NRIs should take advantage of the superior rates of interest offered on deposits in India. Interest rates are at high levels but are expected to come down in the near future.
NEW DELHI: Come April 2013 and your old cheque books from your bank account in India will become void. The Reserve Bank of India (RBI) has introduced a new format forcheques, the CTS-2010 Standard as part of its measures for standardization and enhancement of security features.
"If the cheques are not compliant with the new CTS 2010 standards by March 31st 2013, they may be considered invalid and may not be honored post the deadline or may be cleared at a less frequent interval as per RBI directive. Going forward all customers will need to be careful while writing the new cheques. For instance, cheques with alterations in crucial fields like payee's name and amount in figures or words will not be processed under the new system post the March 31st 2013 deadline. It also becomes imperative that if one has availed a home loan and/ or auto loan and issued post-dated cheques, then they will be required to replace such post-dated cheques with the CTS-2010 compliant ones now before March 31, 2013," explains Virat Diwanji, Executive Vice President and Head Branch Banking, Kotak Mahindra Bank.
"Visibly there would be 4-5 key differences between the old cheques and new CTS (Cheque Truncation System) cheques which can help identify whether the cheque book the individual currently holds is CTS compliant or not," says Diwanji.
The key features:
- Words 'CTS 2010' printed on the left hand side of the cheque leaf near perforation
- All cheques carry a standardized watermark, with the words 'CTS-INDIA' which can be seen when held against any light source
- Pantograph with hidden/ embedded word 'VOID' is included in the cheques. The word is clearly visible in photocopies of a cheque
- The right hand corner of the cheque leaf has boxes provided for the date which is in the DD/MM/YYYY format
- New Rupee symbol inscribed near the numerical 'amount' field
Individuals can look for the following features. If these features are present in the cheque book, it is a CTS compliant one.
Get your new cheque books
"Banks may not automatically issue new cheque books to all customers since very few NRIs use cheques currently as most of them use internet banking for transfer of funds," Diwanji says.
You would thus need to watch out for any communication from your bank regarding issuance of new cheque books. You could also check your bank's website for instructions. Banks would ideally send a communication informing the customers about the new regulations and asking the customers to contact the bank for requesting new CTS 2010 standard cheque book depending on their need and then asking customers to either destroy or surrender the old cheques post they receive the new cheque book.
(The author is a chartered accountant and financial writer. She also blogs at http://blogs.economictimes.indiatimes.com/moneyhappyreturns/ )
In a bid to attract dollars into the country and arrest the fall of the rupee, the Reserve Bank of India recently facilitated a swap deal on Foreign Currency Non Resident (FCNR) dollar deposits. According to the deal, banks that bring in FCNR deposits for a tenure of over 3 years will be able to avail of a forward rate at a premium of 3.5% as against the current market rate of 7%. As a result, banks have started to heavily market FCNR deposits to Non Resident Indians (NRIs).
FCNR deposits do offer a lot of advantages to NRIs. It is a term deposit account that can be maintained byNRIs and PIOs in foreign currency and can be a good option for NRIs looking to invest in India without worrying about currency risks.
The interest rates vary between tenures and from currency to currency. Rates may also vary between banks. But today, thanks to the swap deal, banks are offering FCNR deposits at an interest rate of over 5% on dollar deposits over 3 years. Moreover, this interest is tax free in India. Balances in FCNR can be freely repatriated outside India.
Restrictions on premature withdrawal
However, there is one catch that NRIs need to be aware of. Since RBI's swap deal is available to banks on FCNR deposits over 3 years, banks are restricting partial or premature withdrawal on FCNR deposits opened for a term of 3 years and above. While premature withdrawal penalty is a regular feature of FCNR (B) deposits, banks today are levying higher penalties or completely disallowing premature withdrawal on newly opened FCNR (B) deposits of 3-year terms and above.
"It's important that full disclosure is made pro-actively and the consumer enters into the contract knowingly. At least in this particular case banks are more than pro-active in terms of specifying the pre-mature withdrawal penalty wherever applicable," says Harsh Roongta, CEO of ApnaPaisa.com.
Each bank has its own approach. According to the website of ICICI Bank, 'with effect from October 1, 2013, partial or premature withdrawals for all new and renewed FCNR (B) Deposits opened with a tenure of 3 years and above, is not permitted.'
Kotak Bank in turn has a higher penalty for premature withdrawal. For FCNR deposits over 3 years, no premature withdrawal will be allowed during the first year and the deposit will be locked for that term. Subsequently, if a premature withdrawal needs to be made, it will be subject to a penalty. According to the bank website, 'the penalty will be computed at 7.5 percent per annum plus the prevailing USD/INR swap rate in the market for the residual tenor of the original deposit, applied over the period for which the deposit is held. The Customer shall not challenge the calculation of penalty done by KMBL and such calculation shall be final and binding on the customer.'
State Bank of India has separate products - a regular FCNR (B) deposits and a special FCNR (B) deposit. The special FCNR (B) deposit does not allow premature withdrawal on deposits over 3 years but also offers a higher rate of interest.
Among foreign banks too, there are restrictions on premature withdrawal. While Standard Chartered BankIndia allows premature withdrawal on 3 year deposits, the penalty is variable. According to the bank website, 'the Bank shall recover penalty from the Depositor for all amounts equal to the total losses or costs incurred by the Bank (including, without limitation, any loss or cost incurred as a result of the Bank terminating, liquidating, obtaining or re-establishing any hedge or related position in connection with this Deposit) that are or would be incurred under then prevailing circumstances. The Bank shall be entitled to set-off such losses and costs incurred by the Bank against the Deposit and interest payable thereon.'
July 31st is the last date for filing your Indian income tax returns for the financial year 2012-2013. If you are a Non Resident Indian (NRI) and are trying to figure out if you need to file a tax return in India, this guide will help you.
Should you file returns in India?
If you are an NRI, you would have to file your income tax returns for 2012-2013 if you fulfill either of these conditions:
- Your taxable income in India during the year 2012-2013 was above the basic exemption limit of Rs 2 lakh OR
- You have earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit.
"What this means is that firstly, NRIs do not get the benefit of differential exemption limits on basis of age or gender that is available to Resident Indians. Secondly, for NRIs, certain short term or long term capital gains from sale of investments or assets are taxed even if the total income is below the basic exemption limit. These include short term capital gains on equity shares and equity mutual funds where tax rate is 15% and long term capital gains on securities and assets where tax rate is either 20% or 10% without indexation," explains Vaibhav Sankla, Director, H&R Block India.
Are there any exceptions?
Yes, there are two exceptions:
- If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.
- If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return
Tip: You may also file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below Rs 2 lakh but the bank deducted tax at source on your interest amount, you can claim a refund by filing your tax return. Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return.
What is the last date for filing India tax returns?
The last date to file returns for the financial year 2012-2013 is July 31st 2013. However, remember the following:
- If you do not have any tax payable (that is all your tax has been deducted at source), you can still file your tax return by 31st March 2014 without any penalties
- If you do have tax payable, you can still file your returns by 31st March 2014 but you will be charged an interest of 1% per month for every month of delay starting from 31st July 2013 till the time you file your tax returns .
- If you do not file your tax returns even by the 31st of March 2014, you may be charged a penalty of Rs 5,000 for every year of delay.
Should you have paid advance tax?
As per the provisions of the Income Tax Act, you must pay advance tax in three installments during the year in case the tax payable, after adjusting TDS is likely to be Rs 10,000 or more. There are interest implications in case of default in payment of any installments or lesser payment of advance tax. The interest is generally 1 percent per month for the default amount and extends till the date of payment. Therefore, NRIs should evaluate if they were liable to pay advance tax and whether the same was paid in time. If not, they would need to calculate the interest for default and deposit the same before filing the tax return," explains Vineet Agarwal, Director, KPMG India.
What is the best way to file your returns?
There are 3 ways in which you can file your tax returns. You can do it yourself using online e-filing portals. In fact, from financial year 2012-2013 onward, the income tax department has made it mandatory to e-file returns for in case your taxable income is over Rs 5 lakh. The income tax department provides a free method to upload your tax return online. If you are looking for a more user friendly approach, paid e-filing portals might be a good choice. Many of these paid service providers do offer special packages for NRIs.
If you are not comfortable doing the entire filing by yourself, you can choose to go to assisted preparers. You can get professional advice along with help with filing your tax return.
Lastly, you can opt for the traditional route where your regular chartered accountant with whom you have a long term relationship with files your tax return.